March 19, 2019

APRA issued a letter to all general insurers, life insurers, and private health insurers proposing minor changes to the prudential framework to implement the cross-industry appointed actuary standard. APRA is making amendments to thirteen prudential standards to reflect consequential changes arising from the introduction of the new Prudential Standard CPS 320 Actuarial and Related Matters (CPS 320) and Prudential Standard GPS 340 Insurance Liability Valuation (GPS 340). APRA intends to finalize the revised standards in April 2019. The standards will commence on July 01, 2019.

The changes primarily replace references to revoked standards, update references from Insurance Liability Valuation Report (ILVR) to Actuarial Valuation Report (AVR), streamline clauses regarding exercises of discretion by APRA under previous prudential standards, delete outdated transitional provisions, and correct typographical errors. The following prudential standards are being amended:

  • CPS 220 on Risk Management
  • CPS 510 on Governance
  • GPS 110 on Capital Adequacy
  • GPS 112 on Capital Adequacy Measurement of Capital
  • GPS 113 on Capital Adequacy Internal Model-based Method
  • GPS 114 on Capital Adequacy Asset Risk Charge
  • GPS 115 on Capital Adequacy Insurance Risk Charge
  • GPS 116 on Capital Adequacy Insurance Concentration Risk Charge
  • GPS 118 on Capital Adequacy Operational Risk Charge
  • GPS 120 on Assets in Australia
  • GPS 310 on Audit and Related Matters
  • HPS 310 on Audit and Related Matters
  • LPS 700 on Friendly Society Benefit Funds

For general insurers, three minor changes to GPS 116 will also be made to reflect the current definitions and expectations of APRA. The revised GPS 116:

  • Removes reinsurance premium protection and capital market structures from the definition of alternative capital and risk mitigants in paragraphs 54 and Attachment B, paragraph 13, as these types of arrangements are more aligned with traditional reinsurance
  • Clarifies expectation that the Appointed Actuary include both details of the determination of the net premium liability provision which relates to catastrophic losses (the PL offset) for the reporting year and the estimated PL offset to be utilized in the upcoming year in the AVR
  • Continues the existing requirement that the Group Actuary provide the board of a Level 2 insurance group with an opinion on the Insurance Concentration Risk Charge whenever substantial changes are made or at least annually (at Attachment B, paragraph 18)

 

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Keywords: Asia Pacific, Australia, Insurance, Actuary, CPS 320, GPS 340, Risk Management, Capital Adequacy, Governance, APRA

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